Foo Forum

I must admit I have heard something along these lines before but always from half-rambling, conspiracy theory loving nutcases - never explained quite so clearly and plausibly.

...we pay the bank interest on that money just as though it was real money that existed that somebody was sacrificing to make available to us as a loan. We really think weíre borrowing money that somebody has put into the bank on deposit, and the interest rate is justified because we have to pay that person for the sacrifice he made of making that money available to us, when in fact the money was created out of nothing. And so we are paying interest on nothing. Now that is the scam that Iím talking about. That is how all of our money comes into existence, not only in the United States but in the entire Western world. And if that isnít a scam, I canít imagine what would be.

Money is being created out of thin air and I think they will freely admit that to you. In the old days, the Fed controlled money supply by printing new money or destroying old money. These days they do it electronically through the overnight loans they make the Fed reserve member banks (BofA, Wells Fargo, etc).

The fed decides how much money should be available and changes the amount it loans accordingly.

It is no more a scam than paper money has been since it has been decoupled from gold and silver. At one point you could you dollar bill to the gov't and claim its worth in gold or silver. We haven't done that in years. Our money is backed by "the full faith and credit of the United States" (read your money!) AND the fact that we and most of the world buy that our currency is worth something.

and it's signed by Andrew Bailey - (who?) - apparently, the Chief Cashier of the Bank of England.

In my naivety, I assumed that if I were to go down to Threadneedle Street and pass the piece of paper across the counter, the staff would still be obliged to give me 0.0152 ounces of gold (yes, regardless of the departure from the gold standard back in the early seventies).

If that isn't correct, then what are they promising?

Also, if your dollars are worth something only because you and everyone else thinks they are... where does that leave you all when someone points out that the Emperor's clothes are looking decidedly new? (The same goes for us of course if that "promise" isn't worth the... err... paper it's written on).

I believe they will exchange your 5 pound note for five one-pound coins.

I'm not an economist (although I have worked in the banking industry in another life) so I can't explain things particularly well, but the "money" must be a representation of real value which is present in an economy - goods, knowledge, stocks, whatever.

In particular, if you simply print extra money where no extra intrinsic value exists, the actual purchasing power of the pounds/dollars etc. will go down. This is called inflation, the effects of which are well-known. Good examples are Germany in the 1920s and 1930s, post-war Italy... in these cases the government, unable to meet its obligations, paid its bills by printing more cash. However, as the money supply rises, prices also rise, leading to situations where you needed a handcart rather than a wallet to pay for your groceries. Inflation is the counter-evidence supporting the purchasing power of the promissory note in your pocket.

For the UK, check out the Bank of England's "money supply" statistics - a stable economy requires a stable M0, or "narrow money". M0 is the amount of money in circulation outside of the Bank of England.

Now I'm going to get shot down by a passing economist who wil say I don't know what I'm talking about!

From 1792, when the Mint Act was passed, the dollar was pegged to silver and gold at 371.25 grains of silver, 24.75 grains of gold (15:1 ratio). 1834 saw a shift in the gold standard to 23.2 grains, followed by a slight adjustment to 23.22 grains in 1838 (16:1 ratio).

In 1862, paper money was issued without the backing of precious metals, due to the Civil War. Silver and gold coins continued to be issued and in 1878 the link between paper money and coins was reinstated.

In 1900, the bimetallic standard was abandoned and the dollar was defined as 23.22 grains of gold. Silver coins continued to be issued for circulation until 1964, when all silver was removed from dimes and quarters, and the half dollar was reduced to 40% silver. Silver half dollars were last issued for circulation in 1969.

Gold coins were withdrawn in 1933 and the gold standard was changed to 13.71 grains, equivalent to setting the price of 1 troy ounce of gold at $35. This standard persisted until 1968. Between 1968 and 1975, a variety of pegs to gold were put in place. 1975 saw the U.S. dollar freely float on currency markets.

The federal reserve bank is not "Federal". It is a privately owned entity. They charge interest for every bill printed. The names of the "owners" of the Federal Reserve are protected by law (we can't know who they are).

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks...will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -Thomas Jefferson

a) Not only are we all exchanging pieces of paper of imaginary worth but that...

b) To my mind much more seriously, new loans that are granted are not even backed up by those worthless bits of paper.

It's the latter point that I'm more worried about, not so much the departure from the gold standard.

Are we all to shrug our shoulders and say Hey ho, that's the way the world is?

What did everyone think of Griffin's proposal that inflation is deliberately and steadily manufactured? Is that also something we should just sit back and shrug our shoulders about?

I must confess I'm not much of an economist so I did think that inflation was the inevitable cause of real and concrete factors, not that it could be produced at will by a cartel of financiers who do so for the benefit of themselves at the expense of the majority.

I still don't wish to believe the above scenario because it does indeed sound rather too "black helicopters" to me... so I would be really happy if someone who knows about economics could point out the fallacies in Griffin's portrayal of how the Federal Reserve works.

Inflation is caused by more than just printing money. It is also caused by a heathy growing economy - cash flush businesses and individuals buy more goods. More buyers for limited goods drive up prices - inflation.

I don't think you can have a growing economy without a few points of inflation. But, as long as GDP growth AFTER adjusting for inflation is positive, we are in good shape.

No matter what backed money, it would be controversial as it was in Bryan's day. Dick Chaney would have to replace his old friends with mining execs. Gold? Don't the Russians have tons of it? Silver? Bet Howard Hughes' estate owns half of Nevada. (Melvin Dumar LOL)

No one ever mentions that PAPER was once incredibly rare and valuable.

--- U.S. fractional currency, issued around and after the Civil War was backed by postage. Early fractional currency showed pictures of stamps.